Welcome to the new Becker-Posner Blog, maintained by the University of Chicago Law School.

05/03/2011

Can Poor Countries Afford Democracy? Becker

“Poor countries cannot afford democracy” is a common refrain suggesting that poor countries need strong and authoritarian leaders to overcome the various forces that kept them poor for centuries. In apparent support for this claim is the fact that the great majority of rich countries are mainly democratic. Yet, while the effects of democracy on economic performance are controversial, democracies can have some economic advantages for poor as well as rich countries.

The actual effects of democracy on the economy and other aspects of life should be compared not with an ideal form of government, but with various governments that do not have a free press, do not allow open competition for political office, do not have widespread suffrage, and lack the other institutions and freedoms that define democracies. As Winston Churchill famously said, “"No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government, except for all those other forms that have been tried from time to time." This is from a House of Commons speech on Nov. 11, 1947 that was delivered about two years after he was defeated in an early post- World War II election.

Many studies have tried to isolate the effects of democracy compared to authoritarian systems of government on economic development, inequality, education, and many other factors. Since it is very hard to separate the effects of democracy from that of many other variables, these studies fail to reach conclusive results. The tendency, however, is to find that once other suitable factors are taken into account, there seems to be only a weak relation between long-term average rates of growth in GDP and whether countries are democratic. Democracies do appear to encourage broader investments in education, and education does help promote faster economic growth.

While some authoritarian leaders greatly improve their economies, they are not the rule. For every example of a dictator like Pinochet and Chiang Kai Shek (in Taiwan) who produced fast economic growth, there is a Stalin or Idi Amin in Uganda with dismal economic policies. Similarly, not every democracy handles the economy well. India, for example, has been a vibrant democracy since its independence in 1947. This democracy during its first 40 years produced slow growth under a socialist government, and then India transited to much faster economic growth after the government shifted toward more market-friendly economic policies.

While average rate of growth do not appear to differ much between democracies and authoritarian regimes, the variability in performance does differ more among authoritarian governments. China has had remarkable growth since the 1980s, but the prolonged devastation and hardship produced by China’s “great leap forward” (when millions of farmers starved to death) and its Cultural Revolution would unlikely have occurred in a democratic country like say India. Nor is it likely that say Cuba and many African nations would have suffered so long with such terrible economic policies if they had reasonably democratic institutions.

One reason why persistent economic distress is less likely in democracies is that a free press would publicly report the distress and severely criticize the economic policies causing it. Similarly, political candidates would openly attack policies that lead to prolonged economic crises, and they would often be voted into office with a mandate to change the policies.

Some economic commentators use the strong correlation at any moment in time between wealth of countries and democratic governments to argue that democracy causes greater wealth. To be sure, many long-term democracies, such as the United States and Great Britain, grew very wealthy. So too, however, did countries like Taiwan and South Korea that started to grow rapidly under dictatorships, but became democracies, some rather quickly, when they became richer.

The sociologist Seymour Martin Lipset many years ago concluded from an examination of historical evidence that growing wealth mainly encourages democracy, rather than visa versa. I believe he had basically the right interpretation of the data correlating wealth with democracy. Especially in the modern world, as people get richer they travel more, learn more through newspapers, television, and the Internet about what is going on in their own and in other countries, and communicate by phone, email, texting, and in other way. People in wealthier countries want freedom not only in economic choices, but also in social and political life. These aspirations are not compatible with governments that censor what people read and hear, that try to suppress open discussions on politically sensitive subjects, and suppress challenges from political candidates outside of the officially recognized parties.

So yes, poor countries can afford democracy, as long as they use their democratic government to promote economic freedoms. Unfortunately, many poor countries, including democracies, fail to do this.

"Take trade. Trade creates no value. You and I can trade rocks, all day. At the end of the day, we have nothing."

Hmm....... if two rounds of my trying to teach Ricardo's relative advantage has failed, one thought would be that of googling up work from a better teacher. The "thing is" NO one trades one common rock for another. As you point out.......... NO advantage to either party. Now diamonds from Africa for CA pistachios, or........ AIDs drugs? Work on that example for a while.

Oh, wait! you've another good example!

"Trade only facilitates the exchange of value created by others. If I life in country Y and can build a factory that makes 1000 widgets, and I can only sell 900 in my home country,........."

Indeed! Some things DO lend themselves to economies of scale OR as you mention, spreading development costs over far more customers. Clinton has been involved in some of these, say, most of the cost of an AID's drug is covered by marketing in "first world" nations, so the company can sell billions more at slightly above mfg cost and gin up extra profits, which they may well plow back into more research. Great!

"The problem with trade is that is is principally a justification for opportunistic behavior. For example, if in country A I hire people and use their knowledge to learn how to manufacture 1000 widgets and I then close the factory and move the knowledge to country b, hire lower paid workers, and make 1000 widgets, all that I have done is engage in opportunistic behavior. I have merely taken advantage of the weaknesses in the legal system in Country A to steal the intellectual property of the workers who created the first plant."

Indeed! That IS why a wrote on this very thread about "relative advantage" in trade including that "advantage" of low paid prison labor etc. When I learned the concept it went much more to CA being a better spot for growing oranges, than say, Ireland? and Ireland a great spot for buying leaded glass crystal, than about taking advantage of low wage venues.

Still! even with taking advantage of low wages, is it better for all involved to trade cheaply produced rice from the US (we produce rice at half or less the costs of Japan and Korea) for the sewing and handiwork of Indian women? Or........... try to eat all our rice ourselves and have our costly labor force try to produce cheap blouses here??? What would the Indian women do? And what would they eat?

As for:

"I call this my what's good for the DVD rule. If it is illegal to reproduce a DVD, the same rule ought to apply to all other knowledge."

.. Well copyright laws cover DVD's for a long time! Patents give an inventor 15 years or so of monopoly or licensing benefit to reward his creativity and the development costs. I do get your (populist) drift, but! if say an Iphone had to be mfg by high cost US labor, the price point would be so high that only those finding it easy to lay out $1,000 would buy it. That would mean millions of sales NOT made, along with thousands of Taiwanese sitting on their thumbs starving and unable to purchase our cheap rice and grains.

"Because knowledge wants to be free, the need for legal protection is greater than under current law."

This one IS true! For the system to work intellectual property rights must be universally respected. It's time for China's free ride in its wholesale disregard of I-property rights to end. Most..... including your CD/DVD artists would typically discount their return in lower wage nations, as something on millions of sales is better than a large mark-up on sales only to the rich of those nations.

Well, work on Ricardo a bit, reflect on history, and I think you've got it!

So..... In regard to the topic of "affording Democracy" it looks as though we conclude with Becker and Posner that poor nations can't afford NOT to adopt a functioning democracy..... but that it's extremely difficult to get one working where it hasn't evolved ( or lightening hasn't struck?) before.

I heard China's "problem" put succinctly the other day; as that of the "bad emperor". Just now their undemocratic system is lucky to have rational leaders, but there are few safe guards to prevent the return to something like Mao.

Ha! while, observing from afar, think of the "China model" as we once viewed Japan's success, observers closer to China seem to pepper their observations with "unsustainable" and similar descriptions. Aah yes, the old "past performance is no predictor of future success" warning.

When you are young, you may want several love experiences. But as time goes on, you will realize that if you really love someone, the whole life will not be enough. You need time to know, to forgive and to love. All this needs a very big mind.

When you are young, you may want several love experiences. But as time goes on, you will realize that if you really love someone, the whole life will not be enough. You need time to know, to forgive and to love. All this needs a very big mind.

I talked to several of them on the theme of going to the, then, booming cities, (Tulsa and OK City are still doing well) for their much greater opportunity; they COULD always move back later though, ha! the old postwar song of "How're ya gonna keep 'em down on the farm after they've seen gay Paree" came to mind.

If you click on the MP3 link below, you'll hear a backing track of "The Thrill is Gone" in Bm with some simple Pentatonic solo riffs. I've also experimented a bit with some of the delay capabilities, though honestly I don't think I did the effects justice. Still you can get a sense of the quality of the backing tracks and the built-in tones.

In my opinion, real democracy in its truest essence can not be achieved by poor developing countries. While there is scarcity of means to sustain a good life which is above poverty, there will also be proliferation of corruption and human rights violation.

Wow~~~~~~~~We can provide travelers with real-time information about things to do and places to see as they drive in and around Maryland," said Jennifer Jones, manager of the Office of Tourism's Welcome Center program.